About 50% of power grids in Ukraine need to be overhauled, renewed and replaced due to their significant wear and tear and chronic underfunding of work on the renovation of electrical networks, the Ministry of Energy and Coal Industry reports.
“Wear out of individual equipment in the energy infrastructure of some distribution system operators (DSOs) reaches 70%. At the same time, the volume of annual repairs of the electric power infrastructure is several times less than the need for renewal of networks,” the ministry said.
Ukraine today occupies one of the last places among European countries in terms of investment per 1 km of the network, being behind Romania, Portugal, Poland, Lithuania, Italy, Spain, Germany, the Czech Republic and France, the leader in terms of investment in the power grid.
“This situation negatively affects the quality and safety of power supply. The accident rate in power grids is increasing, and the SAIDI (System Average Interruption Duration Index) is the worst among all European countries (10-30 times higher than in Western Europe, 6 times higher than in the Baltic countries, 3 times higher than Poland, 2 times – Romania),” the ministry stressed.
Thus, if the existing tariff setting system is not to be changed and sufficient incentives to attract investments in the development of networks not to be created, their wear out will approach a critical level.
“The optimal mechanism for attracting investment for the modernization of power grids is the introduction of effective RAB (Regulatory Asset Base). Such a mechanism was introduced in Europe 10 years ago, thanks to which local operators of electricity distribution networks are provided with an investment resource,” the Ministry of Energy said.
According to the forecast calculations of expert organizations, in particular the SE Ukrpromvneshexpertiza (industrial external expertise), which were presented at the meeting of the expert council of the Ministry of Energy, the need for investments in the modernization of power distribution networks in Ukraine until 2030 is estimated at USD 12.5 billion. However, attraction of credit funds for this purpose are not justified due to their high cost totaled 19% per year.
“In order to solve the problems in the distribution system accumulated over the years, the Ministry of Energy supports the position of the National Council of Reforms on the need to introduce an effective methodology of stimulating tariff setting, which would allow attracting investments in the construction and modernization of electrical networks, reduce the cost of connection and ensure a balance of interests as consumers of electrical energy and operators of distribution systems,” the ministry said.
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